Mid-Term Revenue Risk Assessment Model for Railway Public-Private Partnership Projects Based on Copula-NPVaR

Public-private partnership (PPP) proves to be an effective approach to solving the financing problems of railway construction projects. However, there is a lack of studies on how to control its high revenue risk on financial returns caused by great uncertainties regarding revenue and cost during a long concession period for both the public and private sectors. Few studies focused on the mid-term risk assessment model, and there is still no well-developed mid-term risk assessment mechanism. To fill this research gap, this paper develops a mid-term revenue risk assessment model combining copula and net present value (NPV)-at-risk method. The copula-NPVaR (net present value at risk) model is applied in a numerical case study based on a railway construction project. The results indicate that by means of a copula, the simulated NPVs, under the more reasonable stochastic assumptions of random variables, will approach the real value. This model can be a useful tool to assess the profitability and financial sustainability of the project in the operation period, providing the stakeholders with more reliable and quantitative reference on the revenue risk. This study offers both theoretical foundations and practical suggestions to practitioners that will ultimately promote the adaptive and agile management of railway PPP projects.